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DOJ Raids Maritime Industry Meeting and Serves CEOs with Subpoenas

Media outlets have reported that the U.S. Department of Justice raided the maritime industry’s “Box Club” meeting, which is more formally known as the meeting of the International Council of Containership Operators.  Box Club meetings include the CEOs of all major container lines, and even though the meeting locations are not publicly disclosed, the DOJ managed to serve subpoenas in mid-March at the San Francisco meeting, including top executives at A.P. Moller-Maersk, Evergreen, the Orient Overseas Container Line, and Hapag Lloyd.  Notably, the subpoena recipients are not U.S.-based companies—the DOJ may have used the Box Club meeting as an opportunity to exercise its subpoena power over foreign entities.

The maritime industry has historically operated under a sui generis antitrust regime.  Prior to the enactment of the Ocean Shipping Report Act (“OSRA”) of 1998, carriers were permitted to jointly set rates, but they were prohibited from entering into confidential contracts with each other.  OSRA substantially changed that regime. Under its terms, carriers were prohibited from fixing rates, but confidential contracts were legalized, and carriers began to enter into discussion agreements.  If these discussion agreements are approved by the Federal Maritime Commission (“FMC”), the carriers are then allowed to discuss voluntary rate guidelines. 

The Wall Street Journal notes that the subpoenas were served just a few weeks before three shipping alliances were set to go into effect:  THE, Ocean, and 2M Alliances, all of which were schedule to become active on April 1.  These alliances involve some of the companies that were subpoenaed, including Evergreen and the Orient Overseas Container Line, and in terms of volume, these alliances would have been responsible for the transport of 90% of all cargo across the world’s major trade routes. 

While these alliances were approved by the FMC, it does not appear as though the DOJ was on board with the FMC’s endorsement.  In letters dated September 19 and November 22, 2016, the DOJ criticized the OCEAN and THE alliances.  The DOJ explained that these two proposed alliances “will result in a significant increase in concentration in the industry as the existing four major shipping alliances are replaced by only three.” 

The DOJ also noted that the alliances will “facilitate coordination in an industry that is already prone to collusion,” flagging that four companies which are slated to join the THE Alliance were indicted or have pled guilty in connection with a worldwide conspiracy involving price fixing, bid-rigging, and market allocation among roll-on, roll-off shipping.  Some commentators have also speculated that because carriers have long had the ability to discuss pricing with each other, the maritime industry is particularly vulnerable to illegal activity. 

We will report back with further developments.